DOE Doubles Down on USEC Dementia

by Geoffrey Sea

In a major concession to the Sherrod Brown 2012 reelection campaign and the Rob Portman veepstakes bid, the US Department of Energy this morning announced a bailout package for USEC Inc. The done deal, begging to be undone, locates the current, and assumed to be outgoing, Secretary of Energy, Steven Chu, as a resident alien from Planet Bizarro.

According to the announcement, on June 12 – one day after the anniversary of USEC's revelatory centrifuge crash of June 11, 2011, – DOE and USEC signed agreements committing the federal government to pay up to $280 million over the next two years in exchange for USEC's nuclear garbage.

The first installment, now paid according to a USEC news release, is an $87.7 million assumption of liability by the government for title and disposal costs of thousands of tons of depleted uranium waste produced by USEC's allegedly private operations. Some additional $190 million – or whatever USEC should require to maintain the standard of living to which it has become accustomed – will be paid by this allegedly budget-conscious Administration to take title and control over USEC's trash-heap whirligigs, already written off by USEC as worthless, also known as AC-100 centrifuges.

The DOE-USEC agreement is far from a guarantee of the project moving ahead. USEC's creditors, led by JP Morgan Chase, must agree that the arrangement  satisfies the terms of USEC's credit facility, which places stringent conditions on any further pursuit of the non-profitable American Centrifuge venture. Congress must complete the project's financing, in the face of growing congressional criticism. And even DOE is exhibiting signs of less than total resolve. A DOE official was quoted by Politico today as saying:

 “Our hope here is that this all works. But if it doesn’t, we have a number of options that  we can consider."

It was with such optimism that great fortunes like that of Enron were lost.

Congressman Edward Markey, a leading critic of the proposed USEC bailout, released this summary statement in response to the DOE-USEC announcement:

"The decision by the Department of Energy to provide $88 million to purchase non-functional centrifuges from USEC, whose entire market value is $92 million, is a complete and total waste of taxpayer dollars. It underscores the need for GAO to investigate the legal and policy basis for the continued bailouts of a clearly failing company."

One may forgive Congressman Markey for being a bit confused. DOE did propose to buy USEC's defunct centrifuges, many of which were destroyed in last year's crash. Realizing the legal complications of such a purchase, however, DOE has chosen instead to pay good greenbacks for USEC's rusting cylinders of radwaste, and USEC has offered to throw in its old centrifuge junk for free. Such a bargain! That Daniel Poneman (Deputy Secretary of Energy) must be a tough negotiator!

Hey Dan, I have a couple tons of rusted farm machinery mixed with horse shit to sell you. More biomass energy potential than anything USEC has to offer, I guarantee.

 South Ohio Turkey Vulture circling near the USEC carcass.

Photo by Larry Henry

According to a Form 8-K filed by USEC with the SEC today, a set of new “milestones” for the project has been adopted, which is:

May 2014 - Successful completion of the American Centrifuge Cascade Demonstration Test Program
June 2014 - Commitment to proceed with commercial operation
November 2014 - Secure firm financing commitment(s) for the construction of the commercial American Centrifuge Plant with an annual capacity of approximately 3.5 million separative work units ("SWU") per year
July 2017 - Begin commercial American Centrifuge Plant operations
September 2018 - Commercial American Centrifuge Plant annual capacity at 1 million SWU per year
September 2020 - Commercial American Centrifuge Plant annual capacity of approximately 3.5 million

This is a work of creative fiction meriting some sci fi-fantasy prize, composed for an audience with unlimited capacity for the suspension of disbelief. All of the dates are between seven and nine years later than the original milestones set for the American Centrifuge project, milestones that were not nearly met because the technology in question was already outmoded and ill-suited to the task when Ronal Reagan's administration canceled the first iteration of the project in 1985. By 2017, AC-100 machines will be categorical antiques, more than forty years old and totally non-competitive with new technologies being developed in more than half a dozen countries.

Note that “firm financing commitments” from the private sector are not scheduled until November 2014, that is AFTER the 2014 mid-term election, meaning that USEC-puppet incumbents hope this charade will carry them through not one but two political cycles. If the “firm financing commitments” were actually expected to come, they would, of course, be scheduled to happen in advance of the election. Late November in an even-numbered year is the season for programmed disappointment in south Ohio .

Note also that the June 2014 “commitment to proceed with commercial operation” falls just shy of October 1, 2014, USEC's due date for repayment of $530 million in bond debt – bonds that USEC floated in 2007 that were supposed to pay for construction of the commercial centrifuge plant. Money, it should be mentioned, that USEC has already spent, before construction of a commercial plant has even started. Having your construction bonds come due before construction is even initiated is not considered a stellar business practice.

In other words, the schedule has been rigged to soak U.S. taxpayers for a maximum amount of public funds, while extracting from Ohio voters support for seven cycles of USEC-booster bozo candidates, before going bust in carefully-orchestrated increments in 2014. Quite a scam.

And there are a few other big problems with the latest DOE Deal of Deals:

1. Lots of “national security” mambo-jumbo but neither DOE nor USEC has yet specified any actual national security requirement met by investing in a forty-year old defunct technology.
2. Once again DOE has dispensed with all of the niceties of legal public process – public notice, public comments, hearings, consideration of alternatives – merely to suit USEC's proprietary scheduling needs.
3. RD&D was proposed in October 2011 as a necessary two-year project. Now, after almost a year of no progress, DOE and USEC say they can do the same thing in only a year. There is no reason to believe them.
4. How does USEC plan to meet that $530 million debt to bondholders? Without an answer to that, all the rest is gobbledygook.
5. DOE has signed agreements in order to meet USEC's June 15 creditor deadline that bind Congress to future appropriations which Congress has not approved, violating Secretary Chu's 2011 commitment that RD&D would be done only at Congress's discretion. No bill of appropriation for 2012 or 2013 has yet been been passed despite numerous attempts, but now DOE has committed to fund more than half the project, in explicit violation of a number of U.S. laws.
6. What are the penalties if USEC fails to achieve the new milestones as it failed to achieve all the past milestones with no penalties? The fundamental problem of DOE not providing a realistic incentive structure attached to the provision of public funds remains.*
7. What are the provisions for site decommissioning and what will be the amount of the surety bond to cover site Decontamination and Decommissioning if the project is a failure? Who will pay for that bond given USEC's financial distress and how will collateral be provided since USEC's collateral is committed to its bank lenders? Most importantly, who will make the decision on project termination and when will that decision be made?
8. A subsidiary shell-game is being played. USEC already created a subsidiary called American Centrifuge LLC to receive government funds with accounting controls, and the NRC licenses were transferred to that subsidiary. Now USEC has created a new subsidiary called American Centrifuge Demonstration LLC. Neither of those holds any assets. Why was a new subsidiary necessary when the old one was created for the same purpose?
9. If no public funds can be diverted from the project to pay USEC corporate expenses, as DOE promises, then how will that help USEC's bottom line? USEC is still running at a persistent loss, at the edge of bankruptcy, with no viable near-term profit stream. Why invest huge amounts of public funds in a company about to go bust, with looming debts?
10. If ACP technology is such hot stuff, why won't either DOE or USEC release the financial and technical reviews that were performed twice, in 2009 and 2011, as part of the analysis of USEC's loan guarantee application?

These items beg the question of why the US Department of Energy would enter into a deal so manifestly rotten for the government. The answer is apparent. USEC played the political extortion game too well. The company threatened to go bankrupt just before a hotly-contested presidential election, in the state that is the most coveted electoral prize.

Of course DOE is willing to pay for USEC nuclear garbage. If USEC goes into liquidation, DOE might be stuck with the company's radwaste anyway – it sits on federal land.

What we will see from this deal, at most, is two more years of corruption, delay, and non-development at the Piketon site.

Former U.S. Senator from Ohio George Voinovich once asked, in a moment of candor, whether giving more federal funds to USEC wasn't “throwing money down the rat hole.”

Memo to Ohio voters: The rats of both major political parties have now officially endorsed the rat hole as good politics for the Buckeye State.

*UPDATE: The "penalties" for failing to achieve the milestones are summarized in the 8-K form filed by USEC with the SEC. The "penalty" is that USEC, would be removed from the commercial ACP project (which would de facto be over anyway) and would be paid up to a $665 million royalty for "technical improvements" it had made to the centrifuge design.  Now that's what I'd call an incentive -- to fail. Obviously there ain't gonna be no commercial centrifuge plant at Piketon, Ohio.